BUDAPEST BEACON: What are Hungarians to make of the fact that Prime Minister Viktor Orban has committed them to invest EUR 10-12 billion building two new nuclear reactors at the Paks nuclear power plant without consulting his own cabinet let alone parliament, industry experts, or the Hungarian people?
And what are Hungarians to make of the fact that four days after tying Hungary’s energy cart to Russia’s horse, the government has yet to release a single study indicating that the project is viable, let alone the “deal of the decade” as Orban’s right hand man, Janos Lazar, told the press on Tuesday?
And why has State Secretary Janos Lazar been briefing the press instead of government experts in energy, finance, and nuclear energy?
Orban Viktor will present the signed contract to his government on Wednesday for approval before submitting it the following week to the Hungarian parliament. Once parliament approves the contract, all that is left for it to be legally binding on Hungary for the next three decades is for President Ader to sign it.
What sort of prime minister awards a EUR 10 billion (USD 14 billion) contract to a Russian state owned company without his government first soliciting competitive bids? One who keeps his own counsel and is accustomed to getting his way no matter what any one else thinks.
Instead, of releasing the contract (or at least a detailed summary), Orban has sent Janos Lazar to sell the “deal of the decade” to the Hungarian people via a mass media that is easily manipulated and is incapable of reporting intelligently on complex matters such as energy security or nuclear power at the drop of a hat.
Lazar’s first press conference of Tuesday, January 14
In the absence of any information apart from what the Russian State News Service provided, on Tuesday the Hungarian press dutifully reported uncritically statements made by state secretary Lazar, several of which turned out to be distortions at best, deliberate falsehoods at worse.
Lazar’s claim that the European Commission “had not raised any objections” to the deal.and therefore “given its preliminary approval” was categorically denied at a press conference held the following day by the spokesperson for EC energy commissioner Günther Oettinger.
Furthermore, Lazar’s claim that the government had been authorized by parliament in 2009 to conclude such an agreement turned out to be patently false.
Lazar’s second press conference of Thursday, January 16
Having been called out by the European Commission and various political opposition leaders, Lazar held a second press conference on Thursday, this time with government spokesman Andras Giro-Szaz by his side.
Lazar told the press that the loan conditions offered by the Russians were better than what Hungary could be obtain on the market, but was unable to say what those terms were, stating “they were still being negotiated”.
He then went on to explain that the EUR 10 billion (amount equal to one-third of Hungary’s GDP) would NOT increase the national debt because it was to be borrowed “in installments”, and that for this reason it would not be necessary to modify that part of the basic law which prohibits the state from borrowing money or incurring financial obligations increasing the national debt.
He announced the government would discuss the signed agreement next Wednesday and that it would be submitted to parliament along with the loan agreement on February 3rd. Once approved President Ader must sign it in order for the contract to be valid.
Lazar reiterated what he and/or Russian President Vladimir Putin had told the press on Tuesday, to wit: that nuclear energy will continue to be the cheapest source of electricity in the decades to come, that the construction of two new reactors at Paks would increase Hungary’s energy independence, that the project will create 10,000 new workplaces, that it would provide Hungarian companies with HUF 900 billion worth of orders, and that it would generate some HUF 300 billion worth of tax revenues.
He also added that it was “one of the most transparent contracts in the world in that it contained no secret provisions”.
Lazar claimed the costs of the 10 billion euro loan will not be built into the cost of electricity, because the loan is to be made to the Hungarian state (as opposed to MVM which owns and operates the power plant).
He also stated that because Paks only covers 40 per cent of the country’s energy needs, the rest will have to be imported or covered by renewable energy sources, and that the government’s goal was for renewable energy sources to supply 40 per cent of the country’s energy needs.
Lazar claimed that “Brussels” (i.e. the European Commission) knows everything about the negotiations and raised no objections. He says Hungary sent the draft contract to the EC energy directorate on December 14th, (that is, less than two weeks before Christmas) and that the one month deadline for raising concerns passed without the Hungarian government receiving any letter.
In response to why the Hungarian government did not solicit competitive bids to build the new reactors, Lazar responded because the basis for the project is a contract concluded between countries. He claimed the world’s three largest nuclear power plants are being built in the European Union by contractors chosen not on the basis of tenders but rather on the basis of competitive negotiations. Lazar cited the example of Finland which allegedly issued a tender only to later withdraw it and award the contract to Rosatom.
Lazar stated that Rosatom will issue public tenders in accordance with European Union and Hungarian public procurement and competition regulations, and that the contract provides for forty per cent of the work to be performed by Hungarian subcontractors–an apparent contradiction as EU regulations require that public tenders be open to all EU member countries.
Lazar again reiterated that Tuesday’s agreement took place within the framework of an agreement signed with the Soviet Union in 1966. He said for the two new reactors not to be built from the same Russian technology would represent a “security threat”.
He then stated that the first reactor will come on line in 2024-25 and the second 12 to 18 months later, that is, six to eight years before the first two of four existing 500 megawatt reactors are scheduled to be decommissioned.
Will the real Janos Lazar please stand up?
It is hard to believe that this is the same Janos Lazar who, while an opposition MP, reportedly wrote:
Doing business with Russia was always a reflection on one’s choice of values. A values decision was taken in 1848, 1919, 1945, and 1958 at the time of Imre Nagy’s execution. Because those who do business with the Russians cannot be the party of freedom.
At a book dedication in 2010 the state secretary stated that “it’s a bad thing for the country to depend on Russia for 80-90 per cent of its energy,” adding that “one of the most important tasks for the next two decades will be to rid the country of its dependence on Russian energy.” He went on to say that “while Russian-Hungarian business may appear to be useful from an economic point of view, history teaches us that this is always accompanied by the sacrifice of democracy.”
What are Hungary’s own experts saying?
Hungary’s own experts in energy policy and atomic power appear to be avoiding the press, possibly for fear of incurring the wrath of the government by saying the wrong thing.
On Thursday evening the director of Hungary’s Economic Research Institute, Andras Vertes, told ATV’s Olga Kalman that, while there can be no doubt that nuclear power is the cheapest source of power, new reactors cannot produce electricity for the same cost as old reactors that have already paid for themselves.
According to Vertes, the construction of new reactors requires an enormous amount of capital, and that for this reason electricity generated by the new reactors will likely cost two and a half times more than what it presently costs. (According to Kalman, whereas Paks presently generates electricity at a cost of HUF 12 per kilowatt/hour, the most optimistic projection for the new reactors is HUF 24-26 per kilowatt/hour).
For this reason, Vertes was unable to say what the economic basis for the decision to invest EUR 10-12 billion was building two 1200 kw reactors. Nor does he understand the need to order new reactors now when the existing reactors are not scheduled to be decommissioned for another 18 to 22 years.
Vertes points out that even if the term of the loan is 30 years, principal repayment alone will come to HUF 100 billion (USD 46 million) annually plus up to another HUF 100 billion annually in interest, for an annual total of up to HUF 200 billion.
(In a separate interview PM co-chairman Javor Benedek told ATV’s Antonia Meszaros that total revenues from the sale of electricity generated at Paks last year amount to HUF 125 billion (USD 57 million), from which MVM had to pay wages and purchase fuel.)
In response to Lazar’s claim that the cost of repaying the loan would not be built into the price of electricity, Vertes said the European Commission would not agree to this because it clearly constituted a “hidden government subsidy”. In his opinion “the stupidest thing a country could do” is to repay the loan from sources other than revenues arising from the sale of electricity because it results in a situation where Hungarian taxpayers are effectively subsidizing “tax cheats” and large consumers of electricity.
When asked why Hungary was entrusting its energy policy to Russia for the next 100 years, Vertes said
This is what nobody understands. The whole thing has taken place in secrecy. We suspect not everything has been taken into consideration, and that the deal is based on the mistaken belief that Hungary will export electricity to Germany which is not building any more nuclear power plants. . . . Presently there is an oversupply of energy on the market. Why does Hungary have to do everything for ourselves? Why can’t we cooperate with the Slovaks, Czechs, or Austrians and the other countries around us? Isn’t that what the EU is supposed about? Why can’t there be a common energy policy?
What are the opposition political parties saying?
MSZP (Hungarian Socialist Party)
At a press conference held on Thursday, Socialist MP Istvan Jozsa called “unlawful” the prime minister’s decision to award the contract to Rosatom without consulting either the government or the parliament. According to Jozsa, “Viktor Orban decided himself on the country’s energy policy for the next hundred years without being authorized by parliament or society to do so.”
Jozsa agrees that nuclear energy is the “clear and unavoidable source of energy for Hungary” and that, with satisfactory preparation, “Paks is suitable for expansion”. However, he was quick to add that “what has happened to date is not satisfactory preparation.”
On the subject of the European Commission, Jozsa said “the fact that Brussels did not respond cannot be taken as approval” although he believes the EU will allow the contract to be awarded without tender.
According to Jozsa, MSZP does not blame the Russians or President Putin, who is “representing the interests of his own country and its companies, which is for Rosatom to be able to sell its high-quality technology to other countries.”
In contrast to the Finnish example offered by Lazar, Jozsa pointed out that the Czech Republic ended discussions to expand its nuclear power plants because it did not see clearly when the original investment would be recouped.
Discussion for Hungary (PM)
PM co-chairman Benedek Javortold ATV’s Antonia Meszaros that his party considers the contract signed on Tuesday “invalid” because the government was not authorized to conclude such a contract.
The 2009 decision authorized government to prepare preliminary studies and to study the various alternatives, not to make a final decision. The purpose of the decision was to see clearly what it would cost, what kind of financial constructions are behind it, what consequences it would have for energy security, and for parliament to make decision based on that. Even that was too much for the Ombudsman at the time who said more information should have been provided to parliament before adopting the resolution.
Javor told Antonia Meszaros that the government must explain its reasons for signing this agreement because so far no explanation has been given. He said “the government needs to explain how much it will cost, where the money is coming from, how much they think the cost of the electricity produced will be, and why it won’t be more expensive than electricity that can be purchased on the market place.”
According to Javor’s calculations, if the Hungarian government borrows EUR 10 billion from Russia, then this represents an additional cost of HUF 125-150 billion annually, where the Hungarian national debt is already at 80 per cent of GDP.
HUF 125 billion is the annual revenue of the Paks nuclear plant. And that is before paying for labor or fuel. I congratulate anyone who can figure out how to operate the new power plant under such circumstances. If construction takes longer than expected or interest rates increase, then it could cost more.
Javor strongly objects to the fact that information about the deal was only made available after the government signed the contract, and that it was only released to the press, telling ATV that “the government should have informed Parliament and allowed a public debate to take place BEFORE signing the contract.”
According to Javor, the viability of the project depends largely on the financial construction, and that a mere 1 per cent difference in the cost of capital can mean the difference between a project that is financially viable and one that is not. He calculates that in order to recoup an investment of EUR 10-12 billion, the price of electricity will have to increase to HUF 30-32 per kilowatt/hour..
Who is to guarantee that we will be able to export it when the current price of electricity is half that amount? More likely the EUR 10 billion loan will be used to build an enormous loss making project lasting decades into which we must continuously invest taxpayers’ money. A public discussion should have taken place.
Javor claimed that for years he had asked the government to provide information about this, but that it was never forthcoming.
When asked why he thought Viktor Orban had signed the contract prior to any public discussion or parliamentary debate taking place, he volunteered that, in his opinion, Prime Minister Orban had a “disturbed vision of Hungary and Russia somehow cooperating on the export of energy to Europe.” He pointed out that “the European Union has already told Hungary to terminate contracts concluded with Russia regarding the construction of the new southern gas pipeline because they violate EU regulations’” and that ” Hungary will become dependent on Russian money and energy for decades to come”.
Javor dismissed as “a lie” Lazar’s claim that the project needs to be built now in order to avoid future power shortages, pointing out that the new reactors will operate in tandem with old ones for a period of eight to twelve years. According to Javor Hungary’s existing high voltage network is not capable of transmitting so much power.
He believes investing a fraction of the amount to be invested in Paks in renewable energy would “secure Hungary’s energy future in a sustainable manner.”
Politics Can Be Different (LMP)
According to LMP spokesperson Katalin Csiba, Javor Benedek’s former party agrees with his assessment of the situation. According to Csiba studies have concluded that 250 per cent of Hungary’s energy needs can be met through the development of renewable energy sources.
The following statement can be found on LMP’s website (lehetmas.hu):
The head of government signed an agreement with Russia regarding the expansion of the power plant in Paks and a related agreement to incur HUF 3 trillion worth of debt without ensuring the people of Hungary any opportunity to express their opinion. As a responsible political power LMP will do everything it can in the interest of enabling Hungarian people to decide about their own future, and for this reason the chairman want to discuss this matter with the President before the spring session.
LMP also announced that party co-chair Bernadett Szell had challenged Minister Nemeth to debate the agreement in public.
The Movement for a Better Hungary (Jobbik)
Hungary’s radical right wing party was the only opposition party to welcome news of the agreement. Jobbik MP Marton Gyongyosi (who also serves as vice chairman of the foreign relations committee) stated that “for once the government had decided in a manner following our national interests”. Gyongyosi claims Jobbik has been advocating this for years and thinks it “reasonable” that those expand the power plant “who build the project and know the technology”.
Although Gyongyosi did not know the details of the agreement, he says there can be “no doubt that it was a good decision”.
Russia is a strategic partner, the agreement creates energy security, and makes diversification possible. We support everything that increases our independence from the European Union and the IMF. Of course a tender could have been issued, but in the end the decision would have been the same. By the way it does not serve Hungary’s interest to contract with countries who destroyed the country over the past 24 years.
Gyongyosi added that “knowing the Fidesz government, it cannot be ruled out that companies close to Fidesz will get the work”.
Közgép wins everything from handling waste to flood control. Obviously it will get a big slice of the expansion of Paks. It’s not the Russians’ fault that we have such a government.
And what do the Hungarian people think?
According to a survey prepared in 2011 by Median, 32 per cent of those questioned said they supported the extension of the life of the Paks nuclear power plan and 36 per cent said they supported the construction of a new nuclear power plant. 58 per cent opposed it. 69 per cent said that the cost of the energy was a determining factor. The majority of those surveyed said they would not pay more for electricity, and that this applied to renewable energy as well.
As in other matters, the majority of Hungarians will probably end up believing what state television tells them to believe, which is unlikely to be “the whole truth, and nothing but the truth”.
Referenced in this article:
Két héten belül biztossá válhat a paksi bövítés, origo.hu, 16 January 2014
Vértes András, atv.hu, 16 November 2013
Putyin birodalmat épit?, atv., 16 January 2014
Népszavazás Paksról, atv; 16 January 2014
Lázár 2010-ben: Az oroszokkal való üzletelés értékválasztás, nol.hu;17 January 2014
